Canada: Questions And Caution Regarding Canada's Proposed Deferred Prosecution Regime

On March 27, 2018, Parliament introduced draft amendments to the Criminal Code that, for the first time in Canada, will provide the possibility for an organization to enter into a deferred prosecution agreement under what will be known as the Remediation Agreement Regime ("RAR").1 

The RAR will create a process whereby, subject to negotiated agreement with a prosecutor and court approval, an organization may be able to avoid prosecution for certain economic crimes – with no conviction recorded – by entering into a remediation agreement. Such an agreement may come with substantial financial penalties, forfeiture of property obtained by the commission of the offence, restitution to victims, a review of compliance controls and, in some instances, the appointment of an independent monitor to oversee the implementation of remedial measures. 

Significantly, the negotiation of a remediation agreement may not eliminate or even reduce related or knock-on legal risks for the organization, including further enforcement or civil proceedings in Canada or elsewhere.  Such risks could be mitigated by some clarifications and changes in the legislative language, but most importantly these risks will have to be carefully addressed in the specific context of the negotiation process and final terms of any given agreement.  

If the RAR is adopted, Canada would join the growing number of jurisdictions that have adopted, or are adopting, deferred prosecution mechanisms, which includes the United States, the United Kingdom, Australia, France, Argentina and Singapore.

Eligibility for the RAR

A prosecutor may enter into negotiations for a remediation agreement if the following conditions are met:

  • there is a reasonable prospect of conviction for the alleged offence;
  • the alleged offence is eligible under the RAR; and
  • the negotiation of an agreement is in the public interest and is appropriate in the circumstances.

Eligible offences will initially2 include 31 economic crimes, including foreign and local corruption, secret commissions, manipulation of books and records, fraud, manipulation of stocks and insider trading, whether committed before or after the coming into force of the RAR. Offences related to tax evasion, economic sanctions, export and technology transfer controls, lobbying, competition and environmental crimes are noticeably absent from the list. Possession of property obtained by crime is included, but money laundering is not.

The RAR will also specifically exclude:

  • offences committed by individuals, public bodies, trade unions and municipalities;
  • offences, such as worker safety violations, causing death or serious bodily harm, or offences causing injury to national security; and
  • offences committed in association with a criminal organization or a terrorist group.

Meeting the public interest threshold will depend on several factors to be considered by the prosecutor, including:

  • the circumstances in which the offence was brought to the attention of the authorities;
  • the nature and gravity of the offence;
  • the degree of involvement of senior officers3 in the offence;
  • the imposition of disciplinary measures against the persons involved in the offence;
  • whether the organization has taken measures to remedy the harm it has caused, and to prevent the commission of similar offences in the future;
  • prior convictions, sanctions or remediation agreements entered against the organization or any of its representatives;4 and
  • the willingness of the organization to identify individuals involved in the offence.

In the case of offences under the Corruption of Foreign Public Officials Act, the RAR specifically provides that the prosecutor may not consider national economic interest, the potential effect on diplomatic relations or the identity of the organization or individual involved in considering a remediation agreement.

Terms of the Remediation Agreement

The proposed legislation includes a list of mandatory and optional clauses for all remediation agreements. Mandatory clauses include the following:

  • a statement of facts and an admission of responsibility;
  • an obligation to report on the implementation of the agreement;
  • disclosure obligations in respect of related wrongdoings and persons involved;
  • an obligation to cooperate in investigations and prosecutions in Canada, or elsewhere if the prosecutor "considers it appropriate";
  • a deadline to meet the terms of the agreement;
  • sanctions, including a non-tax-deductible penalty, a victim surcharge equivalent to 30% of the penalty (inapplicable in respect of foreign corruption offences), forfeiture of any benefit or property obtained directly or indirectly from the commission of the offence, and reparations to victims, if applicable;
  • an indication of the use that can be made of information obtained as a result of the agreement; and
  • notice of the prosecutor's right to vary or terminate the agreement with the approval of the court.

Optional clauses include the following:

  • an obligation to implement or improve the organization's compliance measures;
  • the reimbursement of the costs incurred by the prosecutor in administering the agreement; and
  • the appointment of an independent monitor to monitor performance of the obligations under the agreement by the organization.

Important Considerations for an Organization Contemplating a Remediation Agreement

Given the combined effect of a penalty and victim surcharge, the forfeiture of property or any benefit obtained by the commission of the offence, and the possible expense of a monitor of remediation obligations and restitution to victims, entering a remediation agreement will create significant costs for the organization.

The prosecutor is required to take reasonable steps to inform victims as soon as practicable after an organization has accepted an offer to negotiate or after the parties have agreed to the terms of the remediation agreement. This may result in substantial claims for compensation being made by victims as part of the negotiation of the remediation agreement.

The RAR will also impose on the organization an obligation to cooperate in any "investigation, prosecution or other proceeding" in Canada and, if the prosecutor requires it, elsewhere, which results from the act or omission subject to the remediation agreement. Absent some reliable assurances that co-operation will not be used in a foreign prosecution of the organization, there would be many circumstances where the risk of foreign prosecution could make participation in a remediation agreement inadvisable.  A prosecutor's ability to seek cooperation with foreign agencies ("if the prosecutor considers it appropriate") vests prosecutors with enormous power, which, in our view, should be subject to some judicial oversight within the process.  In addition, the obligation to cooperate with "any investigation, prosecution or other proceeding in Canada...resulting from the act or omission" is vague and overbroad, as it could include myriad types of proceedings, which could be commenced by other agencies or even private plaintiffs.   

A mandatory condition of a remediation agreement is "an indication of the use that can be made of information obtained as a result of the Agreement, subject to subsection (2)". That subsection - 715.34(2) - states:

"No admission, confession or statement accepting responsibility for a given act or omission made by the organization as a result of the agreement is admissible in evidence against that organization in any civil or criminal proceedings related to that act or omission, except those contained in a statement of facts and admission of responsibility referred to in paragraph (1)(a) and (b) if the agreement is approved by the court."

In its current form, the bill is unclear whether, in the event of a prosecution after the organization's breach of the remediation agreement, the organization's admission of wrongdoing in the remediation agreement is admissible to obtain a conviction for the offence that had been the subject of the remediation agreement.  Clarification is warranted, in our view. 

Court Approval and Stay of Proceedings

After negotiating and entering into a remediation agreement, the agreement will be submitted for the preliminary approval of the court. For such approval to be granted, the court must be satisfied that:

  1. the organization is charged with an offence to which the agreement applies;
  2. the agreement is in the public interest; and
  3. the terms of the agreement are fair, reasonable and proportionate to the gravity of the offence.

In determining whether those criteria are satisfied, the court must consider the reparations offered to the victims as well as victim or community impact statements.

Following court approval, the prosecutor will move to enter a conditional stay of the criminal proceedings. Proceedings will remain stayed unless the organization is found by the court to have breached the agreement.

A provision of the bill with some unusual language provides that, "on application by the prosecutor, the court must by order, approve any modification to a remediation agreement if the court is satisfied that the agreement continues to meet [emphasis added]" the conditions which justified its original approval by the court.  While the court's issuance of an order is mandatory if the conditions are met, we anticipate that courts will interpret this provision as allowing the organization a full opportunity to respond to the prosecutor's application, which would include the ability of the organization to propose an alternative modification to the remediation agreement.  

The draft legislation provides that "on application by the prosecutor, the court must, by order, terminate the agreement if it is satisfied that the organization has breached a term of the agreement [emphasis added]". This raises a question about the materiality of a breach warranting the termination of the agreement and exposing the organization to criminal prosecution.  The legislation would be improved by an amendment that clarifies the onus of any finding of breach before the court can order the agreement terminated, with the result that the organization will be prosecuted.

Enhancement of the Integrity Regime

Along with the introduction of the RAR, Canada has also announced changes to the Integrity Regime that establishes the policy-based rules of debarment from federal public contracts. According to the few details that are available so far, it is expected that:

  1. There will be greater flexibility when determining the duration of a supplier's ineligibility. Currently, the Integrity Regime provides mandatory periods of debarment – which can be up to 10 years – that can be reduced in certain cases by up to 5 years pursuant to an administrative agreement with Public Services and Procurement Canada ("PSPC"). Under the reform, all debarment triggers would be subject to a discretionary debarment period of up to 10 years.
  2. There will be new and significantly expanded grounds for debarment, including the following:

    1. Additional federal criminal offences, such as fraud under the Criminal Code; conspiracy or collusion to defraud Her Majesty under the Financial Administration Act; offering or accepting bribes under the Financial Administration Act; corruption-related offences regarding municipal corruption under the Criminal Code; political financing offences under the Canada Elections Act; attempts to commit or being an accessory to an offence listed in the Ineligibility and Suspension Policy; counselling a listed offence that is not committed; and conspiracy to commit a listed offence;
    2. Provincial offences that are similar to the federal offences under the Lobbying Act, the Income Tax Act, the Excise Tax Act and the Financial Administration Act that are currently listed in the Ineligibility and Suspension Policy, as well as provincial securities offences;
    3. Foreign civil judgments for misconduct that would have been prosecuted criminally in Canada and is captured under the Integrity Regime;
    4. Debarment decisions of provinces, foreign jurisdictions, and international organizations (i.e., "cross-debarment"); and
    5. Poor contract performance and violations of PSPC's Code of Conduct for Procurement.
  3. Canada will expand the scope of business ethics within the Integrity Regime by introducing additional triggers for possible debarment, including:

    1. Human trafficking under the Criminal Code and the Immigration and Refugee Protection Act or under similar foreign legislation;
    2. Failure to take reasonable steps to guard against the use of forced labour within the supply chain;
    3. Infringement of the Canada Labour Code, including infringement of occupational health and safety norms and of norms on standard hours, wages, vacations and holidays; and
    4. Being named to the Environmental Offenders Registry as a result of a conviction in the last three years under specified federal environmental laws for intentionally or recklessly causing an environmental accident, unlawfully disposing of or abandoning a substance, and repeat offences.

The changes are expected to be released on November 15, 2018, and to come into force starting January 1, 2019.

Comments

The proposed RAR reflects a policy decision that, in certain circumstances, pursuing the criminal prosecution of an organization for economic crime is counterproductive given the devastating effects that corporate conviction can have on a viable productive corporation, and on innocent persons – including employees, pensioners, customers and suppliers – as well as on the general economy.

Organizations facing possible prosecution for economic crime may obtain a real benefit by entering into a remediation agreement, since remediation agreements can protect corporations from some of the most damaging consequences of a criminal conviction.  On the other hand, remediation agreements entail very significant financial consequences of various kinds.  As well, organizations that negotiate remediation agreements will continue to face material legal risks. Some of these risks could be mitigated through clarifications and changes to the current proposal, which would advance the goal of encouraging organizations to self-report and negotiate remediation.  Regardless of whether such salutary amendments are introduced, it will be necessary to carefully negotiate the specific terms of any remediation agreement, having regard to the danger of related or knock-on charges or claims by foreign as well as domestic agencies or claimants.

Footnotes

1      Bill C-74, Budget Implementation Act, 2018, No. 1, 1st Sess., 42nd Parl., 2018, cls. 404-406.

2      The RAR would give the Governor in Council the power to amend the list by adding or deleting offences.

3      "Senior officer" is defined at s. 2 of the Criminal Code as "a representative who plays an important role in the establishment of an organization's policies or is responsible for managing an important aspect of the organization's activities and, in the case of a body corporate, includes a director, its chief executive officer and its chief financial officer".

4      "Representative" is defined at s. 2 of the Criminal Code as "a director, partner, employee, member, agent or contractor of the organization".

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